Economic Optimism Index Climbs

Posted by: Joe Weber on June 09

More U.S. business leaders appear to be throwing off their sour looks and calling a halt to hand-wringing about the nation’s economy and the fate of their own businesses. Nearly half of about 320 senior executives surveyed in late May for the Grant Thornton LLP Business Optimism Index are flashing a thumbs-up signal, the accounting firm reports. This puts the GT index comfortably back into pre-recession territory.

The survey, released June 8, found that 45% of the respondents expect conditions to improve over the coming six months, compared with just 17% when they were last quizzed, in February. Some 62% said they felt optimistic about their company’s growth through the balance of this year, up from 43% in February.

But the upbeat outlooks are curiously tempered. More than half of those questioned, some 54%, said they expect the economy to come out of recession in the first half of 2010, nearly a quarter (24%) said sometime in the second half of 2010, while 6% were aiming for 2011. Only 15% said that the recession will end in the second half of this year, meaning only an intrepid few share Federal Reserve Chairman Ben Bernanke’s optimistic view.

Of course, much of that may turn on what exactly people mean by "recovery." In economist-speak, recovery begins when a range of indicators hit their lowest points and then turn upward. Rarely does it seem that the economy is rebounding until well after that long process has begun. In fact, the unemployment rate -- the indicator most folks watch -- often climbs even after recovery is under way.

The accounting firm combined survey results for three areas to come up with an upbeat business optimism index level of 54.5, up sharply from the 37.6 level in February. The index measures attitudes about whether the U.S. economy will improve, whether the individual businesses of the executives will grow, and whether their companies will hire more people.

Hiring plans, perhaps the most tangible of the measures, give only slender grounds for optimism. Only 20% of those surveyed said their firms would be hiking staff, up from 9% in February. Still, 30% said they could be cutting staff, down from a troubling 45% in February.

Reader Comments

Rod Claar

June 10, 2009 09:39 AM

It is strange but my business (technical training and consulting) is on a very similar line. It often leads the economy and this may be because of the optimism factor.

Rod Claar
http://EffectiveAgileDev.com

The Mad Hedge Fund Trader, San Francisco, CA

June 12, 2009 12:20 AM

I know what keeps Obama awake at night. Let’s say we spend our $2 trillion and get a couple of quarters of weak 2% type growth. Then once the effects of the stimulus wear off, we slip back into recession, setting up a classic “W” type recession. Unemployment never does stop climbing. This happened to Roosevelt in the thirties. So congress passes another $2 trillion reflationary budget. Everybody get’s wonderful new mass transit and alternative energy infrastructure. But with $4 trillion in spending packed into two years inflation really takes off. The bond market collapses, the dollar tanks big time, gold goes ballistic to $3,000, and silver to $50. Ben Bernanke’s replacement has no choice but to engineer an interest rate spike, taking the Fed funds rate up to a Volkeresque 20%. Housing, having never recovered, drops by half again. This all happens in the 2012 election year. Obama is burned in effigy, a Mormon is elected president, and the Republicans, reinvigorated by new leadership, retake both houses of congress. We invade Iran. Crude hits $200. This is not exactly a low probability scenario. Remember Jimmy Carter? This is why junk bond yields are still stubbornly high at 14.5%, and credit default swaps are at lofty levels. The risk of Armageddon is still out there. Just thought you’d like to know. Pass the Ambien.
www.madhedgefundtrader.com

Joseph Weber

June 12, 2009 12:43 AM

Mad,
Whew! I sure hope you're wrong. Otherwise, it's time to head for the hills or build a backyard bomb shelter.
Thanks for your thoughts. With all the buds of recovery just beginning to sprout, however, the doomsday scenario seems to rate low odds. Consider the stock market, the milder uptick in joblessness and the rises in confidence levels. Government spending hasn't even kicked in yet, so the positive changes may just accelerate.
The biggest negative, of course, is the rise in government debt level and the likely rise in taxes that will beget over time. We may also get more than a whiff of inflation. But those things, one hopes, will come after a turnaround is solidly in place.
Let's not forget that we have yet to reach unemployment levels equaling the worst of '81. I suspect we'll get there, maybe top them. But that will likely be after recovery has begun. Or so one must hope!
Best,
JW